Reynolds Printing Company specialises in wedding announcements. Reynolds uses an actual

job$-$order costing system. An actual overhead rate is calculated at the end of each month using

actual direct labour hours and overhead for the month. Once the actual cost of a job is

determined, the customer is billed at the actual cost plus $50\%.$

During April, Mrs$.$ Lucky, a good friend of owner Jane Reynolds, ordered three sets of wedding

announcements to be delivered on May $10,$ June $10,$ and July $10,$ respectively. Reynolds

scheduled production for each order on May $7,$ June $7,$ and July $7,$ respectively. The orders

were assigned job numbers $115,116,$ and $117,$ respectively.

Reynolds assured Mrs$.$ Lucky that she would attend each of her daughters$$ weddings. Out of

sympathy and friendship, she also offered a lower price. Instead of cost plus $50\%,$ she gave

her a special price of cost plus $25\%.$ Additionally, she agreed to wait until the final wedding to

bill for the three jobs.

On August $15,$ Reynolds asked her accountant to bring her the completed job$-$order cost

sheets for Jobs $115,116,$ and $117.$ She also gave instructions to lower the price as had been

agreed upon. The cost sheets revealed the following information:

Job $115$ Job $116$ Job $117$

Cost of direct material $250\mathrm{.}00250\mathrm{.}00250\mathrm{.}00$

Cost of direct labour $(5$ hours$)25\mathrm{.}0025\mathrm{.}0025\mathrm{.}00$

Cost of overhead $200\mathrm{.}00200\mathrm{.}00400\mathrm{.}00$

Total cost $475\mathrm{.}00475\mathrm{.}00675\mathrm{.}00$

Total price $593\mathrm{.}75593\mathrm{.}75843\mathrm{.}75$

Number of announcements $500500500$

Reynolds could not understand why the overhead costs assigned to Job $117$ were so much

higher than those for Job $115$ and $116.$ She asked for an overhead cost summary sheet for

the months of May, June, and July, which showed that actual overhead costs were $$20,000$

each month. She also discovered that direct labour hours worked on all jobs were $500$ hours

in May, and June and $250$ hours in July.

Required:

a$)$ How do you think Mrs$.$ Lucky will feel when she receives the bill for the three sets of

wedding announcements?

b$)$ Explain how the overhead costs were assigned to each job.

c$)$ Assume that Reynolds$$s average activity is $500$ hours per month and that the company

usually experiences overhead costs of $$240,000$ each year. Can you recommend a better

way to assign overhead costs to jobs? Recompute the cost of each job and its price, given

your method of overhead cost assignment. Which method do you think is best? Why?Reynolds Printing Company specialises in wedding announcements. Reynolds uses an actual

job$-$order costing system. An actual overhead rate is calculated at the end of each month using

actual direct labour hours and overhead for the month. Once the actual cost of a job is

determined, the customer is billed at the actual cost plus $50\%.$

During April, Mrs$.$ Lucky, a good friend of owner Jane Reynolds, ordered three sets of wedding

announcements to be delivered on May $10,$ June $10,$ and July $10,$ respectively. Reynolds

scheduled production for each order on May $7,$ June $7,$ and July $7,$ respectively. The orders

were assigned job numbers $115,116,$ and $117,$ respectively.

Reynolds assured Mrs$.$ Lucky that she would attend each of her daughters$$ weddings. Out of

sympathy and friendship, she also offered a lower price. Instead of cost plus $50\%,$ she gave

her a special price of cost plus $25\%.$ Additionally, she agreed to wait until the final wedding to

bill for the three jobs.

On August $15,$ Reynolds asked her accountant to bring her the completed job$-$order cost

sheets for Jobs $115,116,$ and $117.$ She also gave instructions to lower the price as had been

agreed upon. The cost sheets revealed the following information:

Job $115$ Job $116$ Job $117$

Cost of direct material $250\mathrm{.}00250\mathrm{.}00250\mathrm{.}00$

Cost of direct labour $(5$ hours$)25\mathrm{.}0025\mathrm{.}0025\mathrm{.}00$

Cost of overhead $200\mathrm{.}00200\mathrm{.}00400\mathrm{.}00$

Total cost $475\mathrm{.}00475\mathrm{.}00675\mathrm{.}00$

Total price $593\mathrm{.}75593\mathrm{.}75843\mathrm{.}75$

Number of announcements $500500500$

Reynolds could not understand why the overhead costs assigned to Job $117$ were so much

higher than those for Job $115$ and $116.$ She asked for an overhead cost summary sheet for

the months of May, June, and July, which showed that actual overhead costs were $$20,000$

each month. She also discovered that direct labour hours worked on all jobs were $500$ hours

in May, and June and $250$ hours in July.

Required:

a$)$ How do you think Mrs$.$ Lucky will feel when she receives the bill for the three sets of

wedding announcements?

b$)$ Explain how the overhead costs were assigned to each job.

c$)$ Assume that Reynolds$$s average activity is $500$ hours per month and that the company

usually experiences overhead costs of $$240,000$ each year. Can you recommend a better

way to assign overhead costs to jobs? Recompute the cost of each job and its price, given

your method of overhead cost assignment. Which method do you think is best? Why?